As we move through Q3, there are glimmers of optimism for business insurance buyers with a period of hardening rates giving way to signs of moderation creeping back into the market. there is still a great deal of uncertainty swirling around the UK as the country aims to emerge from a pattern of lockdowns and into a more stable phase of co-existing with COVID-19. From an insurance perspective, there is also uncertainty but also glimmers of optimism for business insurance buyers with a period of hardening rates giving way to signs of moderation creeping back into the market. Despite these green shoots however, it’s by no means a consistent picture with some insurance lines more stressed than others.
Take cyber where, thanks mostly to the explosion in ransomware, there’s been a notable and dramatic shift in pricing, appetite, capacity, coverage options and retentions. It’s now all about the quality of the risk and there is very little interest in risks with poor cyber security/ransomware controls. To underwrite a risk, insurers are requiring ever-increasing amounts of underwriting information – including supplemental ransomware questionnaires – and many are establishing clear minimum standards for applicants to qualify for quotations. Many insurers will not renew without the required security controls being in place.
Common sectors such as public sector/education are now out-of-appetite, while capacity is constrained overall, and is expected to further tighten in the second half of 2021, particularly as MGAs are starting to reduce their underwriting appetite. Where a risk can be placed, coverages are being adapted and restricted based on individual client risk profile, and full dependent business interruption coverage is being withdrawn for some clients. Deductibles for large-limit placements are also increasing notably as buyers are asked to carry more of their own risk.
Casualty with caution
The focus on risk quality is also a predominant theme in the casualty/liability space where conditions continue to be modestly challenging. Although capacity is sufficient, insurers are deploying it with caution and coverage terms and conditions are being clarified and tightened. Deductibles are generally stable except on challenged risk types and difficult coverages.
There’s good news for buyers in the financial lines space, where some much-needed stability is coming to the market given much of the hard work in ‘correcting’ portfolios has already been done by insurers in terms of communicating appetite, clarifying coverages, and restricting capacity offerings. Rates are still up but not to the same extent as seen in 2020 and new capacity should help moderate premium rises. There is more pragmatism from insurers and underwriting is on an individual risk basis as opposed to using a blanket, market-wide approach. Unfortunately, this means that some of the businesses hardest hit by COVID – such as tourism, entertainment, leisure, utilities, mining, airlines, biotech, and pharmaceuticals – are experiencing very challenging conditions. As with many lines, the broking and placement process is taking longer and is more time-consuming due to underwriting demands and the complexities manifested by the pandemic.
Property competition returns
On the property side, insurers are reaching the end of the remediation process with most now looking for growth opportunities, which is reflected in their underwriting, pricing, capacity and coverage offerings. Challenges do of course remain, but for those risks that have already experienced pricing corrections, and are able to demonstrate robust risk management and have the quality of information that insurers need, there are signs of competition returning. Generally, there is sufficient capacity except for poorly performing risks, difficult occupancies, or where risk quality/underwriting information is not at the expected level.
It’s a similar story in the motor sector too where favourable results over the past year mean insurer appetite is now strong for well-performing risks, while MGA participants are supporting less favorable risks.
Stand out from the crowd
As some insurers look towards profitable growth, having completed the remediation in their books, the overall story is more optimistic – cyber apart – than it has been for the last few years. But, as ever, there is lots of inconsistency across lines and the onus is firmly on the need for organisations to tell the best story they can when bringing their risk to market. Insurance capital is available but it’s choosy, which means buyers needs to prepare as early as they can for their renewal and be prepared to provide significantly more information than they might be used to.